Comments on: IRS Talks Cell Phones Again

By: Kelly

Kelly — Tue, 16 Jun 2009 00:58:06 +0000

I think so – which is part of the problem. I encourage you, as a small biz owner, to provide a comment to the IRS. I know that I am (I’m a small biz owner – also in business with my spouse!).

By: Manny

Manny — Mon, 15 Jun 2009 23:21:18 +0000

My wife and I are partners in a business with no other employees, and we each have a cell phone that is used for primarily business calls, but occasionally for personal use. Will this new rule affect us in the same manner as it does a business with 50 employees?

By: Ron

Ron — Mon, 15 Jun 2009 19:37:29 +0000

I believe that the “minimal personal use method” for substantiating that the entire amount of an employee’s use of a business-provided cell phone is a good idea. However, it should be broadened to apply to circumstances that are substantially similar to the employee maintaining a non-employer-provided cell phone for personal use during work hours.

(a) [Personal] “cell phone” should at least be replaced by “personal (non-employer-provided) telephonic service.” The reason for this change is that individuals can have services that are functionally equivalent to cell phones that do not use cellular technology, including Voice-Over-Internet (VOIP) services operating over WiFi or other noncellular networks.

(b) Individuals who work from home and/or work from home offices typically have personal land-line phones; in such cases the employer-provided cell phone is provided in order to make business transactions, while the personal land line is available for sending and receiving personal calls.

By: Jeff Day

Jeff Day — Mon, 15 Jun 2009 14:55:49 +0000

When I was a teenager, I worked at a Boy Scout of America Camp. The camp had a ranger with a wife that lived in a house provided by the BSA.

That ranger lived all year on the campground. The home was not taxable income since it was for the convenience of the employer.

To me a cell phone that is provided by the employer, is obviously for the convenience of the employer. No matter, how much of it is used by the employee, it is for the convenience of the employer unless the personal use costs the employer additional expenses. If the employer incurred no additional expenses for the personal usage of the cell phone, there should be no taxable income.

I think it will only be a matter of time, until someone gets “socked” by the IRS and the employee decides what is right is right and goes to Tax Court, and he will prevail, when he shows that the employer incurred no additional expenses for the personal usage of the phone.

Someone above mentioned about the deductability of that expense on his tax return, can’t imagine the likliehood of that working. That will be subject to 2% on schedule A. Not going to get there.

Jeff Day EA
Evansville, IN

By: Kelly

Kelly — Mon, 15 Jun 2009 12:39:48 +0000

David,
I don’t think so. If the IRS settles on a certain split (say, 75% business and 25% personal) and you’re taxed on the personal use, then you can’t deduct that on your personal income taxes as a business expense. It’s already been determined that it’s not.

By: Robert D Flach

Robert D Flach — Mon, 15 Jun 2009 12:24:39 +0000

KPE-

But, as you say, Method 3 would be “the most burdensome for employers” and to employees as well.

Method 2 would not need employee input at all.

And Method 1 would also be burdensome, as I expect most employees do not carry around two (2) cellphones – one used just for business and one used just for personal. And I personally believe that employees given cellphones use them excessively for personal calls – and not just minimal usage.

If Method 1 is going to assume a “minimal personal use”, which is a great deal for the individual employee and employer (no paperwork and no tax cost), it should not have qualifications.

What do you think about safe harbor for deducting business use of personally paid cellphones?

TWTP

By: Kelly

Kelly — Mon, 15 Jun 2009 11:58:49 +0000

I dunno that the safe harbor rule is actually as easy as it sounds. For my own employees, I’d have to compute their individual compensation based on a review of their respective portion of the phone bills each year – so each employee gets taxed on 25% of their portion of the bill. That means combing through the bills and keeping track of which part of the bill is attributable to each employee – not all employees have the same plan or use the same minutes. My employee who regularly travels to Germany has a much higher bill than my employee who regularly visits court in Norristown, one county over. While that’s not calculus, it does considerably add to the administrative burden of the employer especially a smaller business like mine.

By: Robert D Flach

Robert D Flach — Mon, 15 Jun 2009 11:40:34 +0000

KPE-

The “safe harbor” rule is obviously the best for all concerned – and still a good deal for the average applicable taxpayer. I have no doubt that an employee given a free cellphone by his employer uses it for personal use at least 1/3 – if not more – of the time.

This method involves the least amount of work and agita on the part of the employee, the employer, and the IRS auditor.

Could we turn this around and also create a safe harbor for taxpayers (employee and self-employed) deducting the business use of a personally paid for cell phone of 75% of total cost? So they would not have to be required to keep a daily useage log as documentation. Those who want to keep a log to show more than 75% business use would still be allowed to do so.

FYI, I do not have a cell phone, business or otherwise, so this would not affect me personally.

TWTP

By: David Schneider

David Schneider — Mon, 15 Jun 2009 11:36:24 +0000

Wouldn’t you just be able to turn around at tax time and deduct the “income” as a business expense? I mean if the company requires it, shows it as an income to you, then you should be able to deduct it, shouldn’t you? I truly don’t know… but it sounds like it makes sense… OMG I forgot we were talking about the IRS. sorry…

By: JBruce

JBruce — Sun, 14 Jun 2009 18:31:55 +0000

Well, I’d go for the safe harbor. Suppose it ends up at 70%. Suppose the cost of employee cellphones is $100 a month each. That means the employee is on the hook for an additional $360 a year in taxable income. Let’s say you pay them well, so their income tax increase would be 1/3 of that or $120 a year or $10 a month. Then bump the salary of each employee who has a “company” cellphone by $15 a month. That will cover their additional income tax obligation, so they come out even. That means your employee cellphone cost goes from $100 to $115 a month.
Sure, it costs you more, but as “safe harbor” you know the IRS can’t dispute you on this. And the extra cost probably more than compensates you for not having to use the irksome statistical sampling method.
Of course, this means that the company is shouldering the total cost+taxes of the cellphone, which probably is justified if the employer “requires” the employee to have the phone.
Of course, this doesn’t address whether or not employer-provided “mandatory” cellphones should get split treatment in the first place. That’s a different argument.